Proposed Change to North Carolina Divorce

On March 28, the North Carolina legislature proposed the “Healthy Marriage Act,” a change to the statue governing divorce. Currently, North Carolina couples seeking divorce must show a one year physical separation.  This amendment would change that statute to require a two year separation.  The separation does not need to be a physical separation.  Couples seeking a divorce would be permitted to live together.  Instead of separation, the two year period begins after one spouse delivers a written notice of intent to divorce to the other spouse.  Additionally, both spouses must attend courses on communication and conflict resolution.  If they have children, they must attend additional classes on the impact of divorce on children.

These changes, supposedly promoting “healthy marriages,” will likely have the opposite effect.  Delivery of a notice of intent to divorce may become a common event in a happy marriage.  Having this notice delivered would allow the clock to start ticking on the two year waiting period.  There is an indication that any sexual intimacy during the waiting period may trigger an revocation of that notice.  But the couple may just swear that nothing happened during the two years and get the divorce.

Additionally, I would be concerned about one party blocking a divorce by refusing to take the required classes.

The current one year separation is already a significant detriment and barrier to divorce.  Many couples remain unhappily married for many years because of this requirement.  Most attorneys who work in this field would advocate for a shorter period of separation.  Neither lengthening the time period prior to divorce or complicating the divorce statute are the solutions to advocate for “healthy marriage.”

Jack Wiggen is a Partner and Co-Founder of Wiggen Law Group PLLC.  His practice focuses on helping families resolve issues related to divorce, child custody, child support and adoption.  

Wiggen Law Group PLLC
3500 Westgate Drive, Suite 701 DurhamNC27707 USA 
 • 919-680-0000

Child Support and Supplemental Security Income: A Primer

Supplemental Security Income (SSI) is a federal program that provides cash assistance to people with disabilities who have very limited incomes and resources. In most cases, SSI recipients may also obtain a much more important benefit — automatic Medicaid eligibility. Because access to SSI depends on a beneficiary’s income and resources, even small increases in income can cause a reduction or loss of SSI benefits. Unfortunately, when an SSI beneficiary’s parent is ordered to pay child support, those payments can end up ruining the beneficiary’s access to government benefits.

Child support payments are a problem for SSI recipients because the Social Security Administration (SSA) treats a substantial portion of a child support payment as unearned income for purposes of calculating SSI benefits. Receipt of unearned income results in a dollar-for-dollar reduction in an SSI benefit, so, for instance, an SSI beneficiary who receives $200 in unearned income has her SSI benefit reduced by $200 in the month that the income is received. If the amount of unearned income is greater than the entire SSI benefit (for example, when someone has a $500 monthly SSI benefit and she receives $600 in unearned income), the beneficiary loses SSI, and, potentially, Medicaid.

Fortunately, the SSA does not always count an entire child support payment as unearned income. If a child support recipient is younger than 18 (or 22, if she is still in school), and if the recipient receives the payment from an absent parent (defined as a parent who does not live in the same household as the child), then the SSA considers only two-thirds of the payment as unearned income. However, this is small consolation for an SSI beneficiary who has her assistance reduced or terminated despite the one-third break.

There are several ways to handle child support for a child with special needs. If the amount of the child’s SSI benefit is clear at the time of the divorce, it may be possible to agree upon a child support settlement that reduces, but does not eliminate, SSI. (Of course, the benefit of receiving SSI and Medicaid has to be weighed against the advantages of a larger child support payment. In some cases, it may be better to forgo SSI and receive a larger child support award instead.)

In other cases, it may make sense to create a special needs trust for the child’s benefit. The court can then order the non-custodial parent to make support payments directly into the special needs trust. The trust will shelter the income and allow the child to retain SSI benefits, and, in many cases, the support payments can be retained in the trust if not immediately used. Unfortunately, these particular special needs trusts are not perfect because they must contain a “payback provision” that allows the government to recover its Medicaid expenses from the unused assets in a deceased SSI beneficiary’s trust. However, if properly managed, there may not be a large sum remaining in the special needs trust when the beneficiary passes away.

If you are in the middle of a divorce, or if previously agreed-upon child support payments are wreaking havoc with your child’s SSI benefits, talk to your special needs planner about your options immediately.

Does A Special Needs Trust Always Have to Pay the State When a Beneficiary Dies?

You may have heard that special needs trusts are required to reimburse the government for Medicaid expenses incurred by the trust’s beneficiary when she passes away, and, in some cases, this is true. But not all special needs trusts are required to contain this type of “payback” provision, so if you are worried that the trust funds will go to pay back the government, you may not have anything to fear.

If a parent, grandparent, family friend or any other interested person wants to set up a special needs trust for a person with special needs, they will typically create a “third-party” special needs trust. The trust is called a “third-party” trust because it is funded with assets that do not belong to the person with special needs. These trusts are commonly used by family members to set aside inheritances for, or to simply provide additional assistance to, a family member with special needs. If properly created and funded, the assets in a “third-party” trust will not count as the beneficiary’s funds if or when she applies for benefits like Supplemental Security Income (SSI) or Medicaid. Most importantly, a properly designed “third-party” special needs trust does not have to include a payback provision, meaning that the government has no right to the funds when the beneficiary dies.

On the other hand, if a person with special needs needs to place her own funds into trust, she has two main options – transfer the funds into a trust established for her benefit by a parent, grandparent or court called a”first-party” special needs trust (because the assets come from the person with special needs herself) or transfer the funds into a pooled disability trust that is run by a non-profit organization. In almost every case, these types of trusts must contain payback provisions in order for the beneficiary to avoid a loss of government benefits due to excess assets.

In many cases, a family member looking to fund special needs trust for a person with special needs will utilize a “third-party” special needs trust that doesn’t contain payback provisions and that provides enormous benefits to the person with special needs. Even if the trust does contain a payback provision, in some cases where the beneficiary exhausts all of the trust’s assets, there may still not be a government payback at all. In either case, your special needs planner can help you to determine which type of trust is right for your family.

The Family Advisor

This month’s newsletter focuses on our furry friends.  Do you know what happens to your pets after your death under state law?  If you are out of town and your pet needs emergency vet care, does your pet sitter have the authority to authorize treatment?  Who gets custody of Man (and Woman’s) Best Friend in the event of divorce?

Find out in this month’s issue of The Family Advisor.  Click here to read more.

The Family Advisor

 

 

 

 

Check out the most recent issue of The Family Advisor.  This month’s issue focuses on children and what you need to know to protect your family.  You’ll find out how to select a guardian for your children, how to help your children adjust to divorce and the nine costly mistakes to avoid when planning for a special needs child.  http://myemail.constantcontact.com/The-Family-Advisor.html?soid=1106937003090&aid=jkB7DlaSX9A.

Three Legal Documents Every Graduating Senior Needs to Ensure Parents Can Make Important Medical and Financial Decisions on their Child’s Behalf

Will your graduating senior be protected without 3 important legal documents?

As a local attorney, I can’t stress enough how timely (and critical!) this information is for your audience.  Many young adults in our area will soon be heading off to college or traveling abroad without the 3 key documents (Advance Health Care Directive, HIPAA Form and Financial Power of Attorney) they need for mom or dad to oversee their care if they become ill or seriously injured and unable to speak for themselves.

Excerpt from Estate Practice and Elder Law Community : (click for entire article) 

Special Needs Planning Issues Following Divorce

Divorce can be complicated, frustrating, disappointing, expensive, along with a whole range of other emotions, as anyone who has endured this type of proceeding can attest. As difficult as the issues can be in a divorce proceeding, can you imagine what happens when divorce involves a child with a disability?

This article focuses on one case study to illustrate how much more difficult the issues can be when a child with a disability is involved in the marital split, and how important it is to have someone knowledgeable in government benefits and special needs planning issues participate in the proceedings.

The Facts
Consider the following situation: Husband and wife divorced in 1996, when their child, who is disabled, was 4 years old. The husband was ordered to pay approximately $2,800 per month in child support (considered to be about three times an ordinary child support order based upon his assets and income) for the life of the child. While it is unusual to see lifetime child support payments, and the award was larger than is customary, the husband agreed to this primarily because of the guilt he felt around the divorce. He also knew that his daughter was disabled and would require as much help as possible.

Fourteen years later, in 2010, the daughter turns 18 years old. The husband has since remarried and had another child. He feels he can no longer continue to make child support payments at the current level, and in fact his current wife now assists him in making these payments each month.

The husband wishes to seek a modification of the child support award, and he hires the attorney that handled his divorce years earlier to file the court papers seeking a downward modification of child support payments. The theory behind seeking this downward modification of child support payments is twofold. First, the husband would like to argue that since his daughter has just turned age 18, she can now qualify for Supplemental Security Income (SSI) benefits. Second, his daughter could receive services through a Medicaid waiver program, but her income from the child support payment could prevent her from qualifying. Therefore, the husband would like to know if establishing a court-ordered special needs trust to receive the child support payments would protect the child support payments from being counted as income to the daughter.

Can the Daughter Qualify for SSI?
During the course of the proceedings, the wife appears to be the only person testifying as to the question of whether her daughter can qualify for SSI benefits and the utility of creating a special needs trust for her daughter. According to the wife, her daughter cannot qualify for SSI benefits due to the so-called deeming rules, pursuant to which a parent’s income and assets are deemed to be available to the child for purposes of determining the child’s eligibility for SSI benefits. The husband argues that the wife should apply for SSI for their daughter, but she refuses to do so, citing the deeming rules as an obstacle to her daughter’s eligibility, and arguing that her own work income and $400,000 in assets will result in a denial of eligibility.

Without expert testimony, the court may have determined that the daughter was not eligible for SSI benefits, based solely on the testimony of the wife, who had apparently “done her own research on the issue.” In fact, the deeming rules stop when a person turns age 18 under CFR Sections 416.1165 and 416.1851, and their daughter could qualify for an SSI benefit of up to $674, plus any additional state supplement. With this testimony now on the record, the husband is able to argue, credibly, that his daughter is entitled to a monthly SSI benefit of $761 and, if she were to avail herself of this benefit, then this increased income should be taken into account by the court in evaluating husband’s request for a downward modification of the original child support payment.

Can a d4A Trust Hold the Daughter’s Income?
The second major issue in this case pertained to the daughter’s income surplus for Medicaid purposes. As a Medicaid recipient, daughter’s income (solely in the form of child support payments she received from her father) could have prevented her from receiving Medicaid benefits as an adult. The husband wanted the court to order the creation of a self-settled special needs trust under 42 USC Section 1396p(d)(4)(A) (often referred to as a “d4a trust”), and have the child support payments irrevocably assigned into the newly established trust, thereby eliminating any surplus income.

Unfortunately, the husband and wife could not agree on the establishment of a d4A trust. The wife questioned whether such a trust could legitimately receive child support payments. She also testified that she may move to a different state to be with family, and that such a move would require a payback to the first state, reducing available trust funds that would be needed to care for her daughter. What the wife didn’t realize was that under the Social Security Program Operations Manual System (POMS) Section SI 01120.200G(1)(d), an irrevocable assignment of child support payments (i.e., as a result of a court order), is not income for SSI purposes, and therefore would not count for purposes of determining daughter’s SSI or Medicaid eligibility, or the amount to be received under either program.

In addition, there is no such requirement for payback when a Medicaid recipient and d4a trust beneficiary moves from one state to another, a point that was made through expert testimony. The only time payback to any state would be required is when the disabled daughter dies.

The Lesson Learned
The issues in the case study above make it clear that when a child with a disability becomes part of a divorce proceeding, difficult issues arise that warrant the expertise of elder law and special needs planning attorneys. Matrimonial or family law attorneys will very likely not possess the expertise needed to address these issues.

Please contact us if you would like additional information on any of the topics addressed in this newsletter or if you would like to discuss a specific issue.

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax adviser based on the taxpayer’s particular circumstances.

Please feel free to call Wiggen Law Group at 919-680-0000 if you have any questions about this or any matters relating to elder law or special needs planning.

Cutting the Cost of Divorce

Did you know that the month of February is a busy time for divorce attorneys? Divorce is an extremely stressful and expensive event in a person’s life. Here’s an article with tips on how to cut the cost of divorce and keep your sanity.

 

Things to Look for When Choosing a Guardian for Your Children

Academy of Special Needs Planners co-founder Diedre Wachbrit Braverman has prepared a checklist of important questions any parent should ask when choosing a guardian for their child.  You can view the checklist here.